Benfield School will give the cash to 15 youngsters aged 16 from September in a move which is believed to be the first in the country.
Many further education colleges have lured teenagers on to their courses with the promise of free textbooks, help with transport and one - Teesside Tertiary College - offered Pounds 1,200 scholarships.
Pupils at Benfield will get Pounds 50 for signing up for the school's sixth form, which currently has 88 pupils, and a further Pounds 50 after completing their first term.
The Department for Education and Employment said it knew of no other school that was offering cash incentives to its pupils to stay on.
Mike Booth, headteacher, said the money was a reward and not a bribe. "It will be given to youngsters who have done well, worked hard and shown progress. "
The money has been provided by local companies following the cancellation this year of a post-16 bursary scheme run through the Newcastle Compact.
Mr Booth said: "The sort of youngsters who will qualify are those who are well motivated, diligent and hard-working."
Pupils will be selected on the basis of work done in their last compulsory year at the school - and it will not necessarily be awarded to those with the best GCSE results.
Should the cash entice teenagers into the sixth form who had previously not considered staying on, it could be worth Pounds 2,500 per pupil to the school. That is the amount it gets in grant for each sixth former.
But Mr Booth said: "It won't bring extra money in. The pupils who get the cash will be the ones who would have stayed on anyway."
He is now planning to introduce a reward scheme after half-term for the 11 to 15-year-olds in his school.